Bangladesh paying oil-fired power plants for purchase defaults

The state-owned Bangladesh Power Development Board is racking up large losses by paying penalties for not purchasing electricity from some oil-fired power plants under an existing agreement, a top BPDB official told Platts Monday.

Bangladesh has kept many of its oil-fired power plants shut under a cost-cutting measure since early March as the BPDB stopped purchasing electricity from them, Platts reported previously.

Of a total of 34 oil-fired power plants installed in the country, 12 of them, with a combined generating capacity of 591 MW, are currently closed, BPDB data show.

As a consequence, the BPDB is currently paying around Taka 40.32 million/day ($494,723/day) in so-called capacity payments to the 12 plants that are closed for not purchasing electricity as per the agreement.

The payments rose to as much as Taka 120 million/day in April when the BPDB shut the majority of the country’s oil-fired power plants under the cost-cutting measure, BPDB data show.

The BPDB has been making capacity payments to oil-fired power plants under a clause in the power purchase agreement it made with the plants.

In mid-2010 Bangladesh launched a drive to increase the number of oil-fired power plants in the country amid rapidly depleting domestic natural gas reserves, commissioning almost three dozen new oil-based power plants to be built by 2012. But the high price of oil products on the international market led to higher electricity generation costs at oil-fired power plants, resulting in the suspension of generation at many of the plants, the BPDB official said.

Bangladesh meets almost all of its oil needs through imports and state-owned Bangladesh Petroleum Corp. is forecast to import 5.8 million mt of oil products in the fiscal year that ends June 30, up 13.72% year on year.

The Bangladesh Energy Regulatory Commission in late May almost tripled the average industrial electricity tariff to Taka 14.44/kWh from Taka 5.61/kWh for uninterrupted electricity supply with the aim of restarting some of the plants that had closed.

The BPDB is seeking a further 50% hike in industrial electricity tariffs from the BERC to cover losses for running oil-fired power plants.

State-run electricity distribution companies have also sought a similar hike in retail tariffs to pass costs on to end-users.

Bangladesh’s overall electricity generation is currently around 5 GW against demand of over 7 GW.